This year’s slowdown in the market has led to a slowdown in claims. We expect to have approximately 300 claims reported in 2019 compared to 377 in 2018, a decline of about 20% (see below).
E&O currently has 553 open claim files, 9% less than at the same time last year. It seems fair to say that frequency of claims reporting is not an issue at this point.
However, the severity of claims has been a different matter. Although there are fewer open claims, overall case reserves are up by 3% at this point in the policy year. The case reserves are set by the staff lawyer handling the claim and form the basis of the actuary’s estimate of the cost that will be incurred, in addition to the amounts already paid, in order to eventually close all the claims open at a given point in time.
Currently, 72% of the claims are in litigation compared to 66% at this time last year. Just under half of those lawsuits are being handled by our four in-house staff lawyers.
As shown in the chart below, 69% of the claims reported since 2008 (now closed) were closed without any expense other than staff costs to resolve them. A further 16% resulted in legal costs only, while only 15% involved indemnity payments.
The types of claims have not changed significantly over the years. Approximately 70% of the claims result from dissatisfied buyers, while approximately 51% involve claims of misrepresentation. This may involve a licensee providing inaccurate information about a property or failing to advise of material information. The top 10 claims issues since 2015 are:
- Drainage/water ingress
- Subject clauses
- Building or lot size
- Parking/storage lockers
- No permits
- Oil tanks
- Illegal suites
2019’s five most expensive claims
- Breach of fiduciary duty – A limited dual agent was alleged to have conspired with the buyer and to have failed to provide the seller with material information. Total cost, including legal fees: full limit, $1 million.
- Breach of fiduciary duty/misrepresentation – Sellers alleged that the buyer’s agent acted as implied agent for them and breached duties, including providing confidential information to the buyer. Total, including legal fees: full limit, $1 million.
- Negligent misrepresentation – The buyer of a commercial property alleged that the limited dual agent misrepresented the terms of a lease of one of the tenants in the complex. Total, including legal fees: $374,000.
- Negligence – Sellers alleged that the limited dual agent was negligent in drafting the contract respecting vacant possession. Total, including legal fees: $273,000.
- Breach of fiduciary duty – A seller alleged that the seller’s agents misrepresented the value of the property and preferred the interests of the buyer. Total, including legal fees: $267,000.